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Internal Rate of Return (IRR) Calculator

Measure the true annualized return on a real estate investment

Investment Details

After all expenses, mortgage, and vacancy

Agent commission + closing costs (typically 6-8%)

Results

IRR (Annualized)
21.8%
Total Return
$199,000
Multiple on Investment
5.0x
Total Cash Flow
$60,000
Net Sale Proceeds
$189,000
Avg Annual Return
$19,900

What Is IRR in Real Estate?

The Internal Rate of Return (IRR) is the annualized rate of return that makes the Net Present Value (NPV) of all cash flows equal to zero. In plain English: it's the true annual return on your investment when you factor in the timing of every dollar in and out.

Why IRR Is Better Than Simple ROI

Simple ROI ignores the time value of money. A property that returns 50% over 5 years is very different from one that returns 50% over 20 years. IRR captures this difference by discounting future cash flows back to present value.

What's a Good IRR?

For residential rental properties, target an IRR of 12-20%. Core/stabilized properties might have IRRs of 8-12%. Value-add deals aim for 15-25%. Development projects should exceed 20% to justify the risk. If your IRR is below 8%, you may be better off investing in index funds.

The Four Components of Real Estate IRR

1. Cash flow: Monthly rent minus expenses. 2. Principal paydown: Tenants paying down your mortgage. 3. Appreciation: Property value increase over time. 4. Tax benefits: Depreciation and deductions. IRR captures all four, making it the gold standard for real estate analysis.

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